RIM’s Strategic Review Prompts Investor Demands for Sale

Research In Motion Ltd. (RIM) BlackBerry signage hangs above the company's booth at the 2012 International Consumer Electronics Show (CES) in Las Vegas. Photographer: Daniel Acker/Bloomberg

May 31 (Bloomberg) -- Research In Motion Ltd. investors see
an outright sale as the best choice for the BlackBerry maker
after a series of failed turnaround efforts led management to
explore strategic options.

RIM said this week it hired JPMorgan Chase & Co. and RBC
Capital Markets to help it find a partner or license its
operating system. That won’t be enough to reverse the company’s
stock decline and flagging sales, said RIM investor Vic Alboini,
chairman of the Toronto-based investment firm Jaguar Financial
Corp. He’d rather attract a buyer, such as Microsoft Corp. or
International Business Machines Corp.

“We would like to see a sale of the company or a breakup,
and if a breakup, the sale of each of the parts,” said Alboini,
who has urged RIM to sell itself since at least September.
“We’re pushing and cajoling RIM to get to the promised land of
a sale or breakup.”

RIM, beset by shrinking market share, executive turnover
and product delays, tumbled 7.8 percent yesterday, bringing
declines in the past year to more than 76 percent. The company
said this week that it will probably report its first quarterly
operating loss since 2004, and Chief Executive Officer Thorsten
Heins has yet to give a release date for the next generation of
BlackBerry phones aimed at reinvigorating sales.

Seeking Partnerships

The company’s next steps may include forging partnerships,
licensing its software and looking at “strategic business model
alternatives,” Waterloo, Ontario-based RIM said. It’s also
attempting to streamline operations by reducing spending and
headcount. RIM’s shares declined less than 1 percent to $10.29
at 11:10 a.m. in New York.

“It’s a business model that’s badly broken, but it’s got
assets that are worth something to somebody,” said David
Baskin, president of Toronto-based Baskin Financial Services
Inc., which manages C$450 million ($437 million) in equities.
While he doesn’t own RIM shares, he’s considering investing in
the company because of the takeover prospects. “You don’t hire
a banker unless you’re considering a sale,” he said.

Heins, who took over from RIM co-founders Jim Balsillie and
Mike Lazaridis in January, hasn’t ruled out a sale of the
company, though he said in March he’s not focused on that
scenario.

“As Thorsten said on the company’s fourth-quarter earnings
call, ‘We believe the best way to drive value for our
stakeholders is to execute on our plan to turn the company
around.’” RIM said in an e-mail. “This remains true.”

Saying the Opposite

Heins’s stance may just be a smoke screen, said Tom
Caldwell, CEO of Caldwell Securities Ltd. in Toronto, which
manages more than $1 billion in assets. His firm sold its RIM
stock about six months ago, while keeping a few thousand shares
in retail accounts.

“The best way to say you’re considering a sale is to say
you’re not for sale,” Caldwell said. “I think they’re looking
for a buyer for the whole thing.”

U.S. companies have plenty of cash to spend, and Microsoft
has to be seen as a front-runner to buy the BlackBerry maker,
Caldwell said. RIM would give Microsoft a bigger foothold in the
smartphone market, where it’s competing against Apple Inc. and
Google Inc. Microsoft already has a partnership with Nokia Oyj
to build devices based on the Windows Phone software.

Private-Equity Interest

U.S. private-equity firms also may be attracted to RIM,
Caldwell said. A restructured RIM focused on the corporate
market might be the kind of business that a buyout firm would be
interested in, particularly if RIM has already cut some of its
fat, he said.

RIM said this week that it will be making “significant”
reductions in spending and staffing as it looks to save $1
billion in operating costs this year.

Nokia, based in Espoo, Finland, also could be a bidder for
RIM’s phone business, said Jaguar’s Alboini. Facebook Inc., the
world’s largest social-networking company, is another
possibility, he said. That company is trying to bolster its
mobile-phone services. Buying RIM would bring a captive audience
for ads, which “could partially solve their mobile advertising
gap in revenue,” Alboini said.

IBM and Microsoft are the two most logical acquirers of
RIM’s network-services business if the company were broken up,
Alboini said. That division operates encrypted e-mail servers
and handles other functions for corporate customers.

Representatives of Microsoft, IBM, Nokia and Facebook
declined to comment on whether they would consider buying RIM.

Canada’s Government

As it restructures, RIM shouldn’t expect to get aid from
the federal government, Canadian Finance Minister Jim Flaherty
said today.

“It has been a leading company for Canada in terms of
research, development and innovation, but it does need to
reorganize itself, and that’s something that we expect the
leaders in the company to do on their own,” Flaherty told
reporters in St. Martins, New Brunswick.

Flaherty wouldn’t speculate on RIM being acquired by a
foreign company. He said he wasn’t aware of the government
receiving requests to review a deal under the country’s foreign-takeover law.

A takeover of RIM’s size would trigger a review to
determine whether an acquisition is in the national interest. In
2010, Prime Minister Stephen Harper’s government rejected
Melbourne-based BHP Billiton Ltd.’s $40 billion hostile takeover
of Potash Corp. over concerns that the sale would cut jobs and
tax revenue.

BlackBerry 10 Release

Acquirers are unlikely to consider a deal before RIM
introduces BlackBerry 10 later this year, Peter Misek, an
analyst at Jefferies & Co., said in a report. Facebook is an
unlikely buyer, and Microsoft will probably wait to see how its
own Windows 8 software fares before acting, he said.

At the same time, RIM’s falling valuation has made it an
increasingly affordable target. The stock has dropped more than
90 percent from its mid-2008 high, when RIM’s hold on business
users was secure and the iPhone had only been on the market for
a year.

“You’ve got a lot of cash, a lot of assets and a lot of
patents,” said Don Yacktman, founder of Yacktman Asset
Management, RIM’s seventh-largest investor. The firm held about
9.7 million shares of RIM at the end of the first quarter,
giving it a stake of about $100 million in the company.
“There’s still a lot of value there.”

Google spent about $12.5 billion for Motorola Mobility
Holdings Inc. this month to boost its patent portfolio. RIM was
part of a group that included Apple and Microsoft that paid $4.5
billion to buy bankrupt Nortel Networks Corp.’s 6,000 patents
and patent applications.

Todd Johnson, a fund manager at BCV Investment Management
in Winnipeg, Manitoba, said a buyer may step forward before the
BlackBerry 10 rollout. While his firm doesn’t own the stock, he
bought shares himself a couple of weeks ago when they were
trading around $11.